Survey findings for the United Kingdom
60% of total value of B2B sales made on credit
Nearly 60% of the total value of B2B sales in the UK currently employ trade credit, slightly higher than the 55% average for Western Europe overall. 43% of UK businesses told us that the total value of their credit sales increased by an average of one third since the onset of the pandemic. For 45% there was no change. A significantly lower percentage of businesses reported a decrease in the total value of credit sales (12%).
Stimulating sales on the domestic market among businesses of all sizes is the primary reason driving most businesses in the UK to offer trade credit.
This was reported by 65% of businesses, significantly higher than the 53% for the region overall. This approach to credit has been frequently reported by businesses in many different countries during the pandemic. They tell us that domestic trade needs credit to stimulate sales, and that many sales would not be transacted unless credit was offered. 24% of respondents in the UK survey said they granted credit to their B2B customers in order to remain competitive (regional average: 29%), while 11% did so to provide short-term finance to their B2B customers (regional average: 19%).
Poor payment behaviour drives credit refusals
38% of businesses surveyed in the UK (largely SMEs) turned down requests for trade credit, due to a worsening in the customer’s payment behaviour. This is higher than the regional average of 24%.
The second most common reason for a credit refusal is deterioration in the credit risk landscape of the customer’s country, as reported by 31% of the respondents (regional average: 30%). On average, credit refusals corresponded to nearly one third of the total value of B2B sales.
Pandemic payment terms show significant change of direction
In our 2019 survey no UK respondents at all offered payment terms of 90 days or more and only 1% offered terms between 61 and 90 days. The vast majority, 91%, offered terms of up to a maximum of 30 days. The results of this year’s survey show a sharp change in direction. Although the majority of respondents still favour terms with a maximum of 30 days, this dropped during the pandemic to 78% of respondents. Terms of 31-60 days are offered by 14% of businesses (up from 8% last year). 61-90 days are offered by 4% (up from last year’s 1%) and more than 90 days are reported by 4% of businesses, a substantial change from the 0% of last year.
Nearly half of the respondents reported granting longer payment terms (on average up to 30 days longer) in response to the economic crisis, (48% of respondents in the UK, regional average: 47%). 45% reported no change, and only 7% of the businesses polled in the UK reported shorter terms since the onset of the pandemic.
This increase in terms offered can be seen in the overall 33-day average payment terms for the country, longer than last year’s 20 days. Businesses told us the main reasons why they lengthened payment terms were to encourage sales on the domestic market (36% of respondents, regional average 32%) and to provide short-term financing for customers in financial distress (25% of respondents in the UK, close to the 23% average for Western Europe).
Looking ahead over one third of the businesses surveyed told us they plan to continue offering more credit (39% of respondents, higher than the 30% regional average) and longer payment terms (24% of respondents, in line with the 24% at regional level). The majority said this was chiefly to stimulate domestic sales at a time when demand is down. However this approach can be risky as businesses may incur financial and administrative costs by tying up their money in accounts receivable.
Concerns over potential threats to business profitability stemming from the pandemic recession remain among the businesses we surveyed. 43% predict a fall in demand will be the greatest challenge to business profitability next year (regional average: 36%). Maintaining adequate cash flow ranks second (as expressed by 39% of respondents in the UK and 38% in Western Europe).
Atradius Payment Practices Barometer – November 2020
Late payments increase by 81% compared to pre-pandemic levels
Following the onset of the pandemic, the total value of overdue invoices increased to 47%. While this is in line with the regional average (47%), it is significantly higher than last year’s 26%, and represents an average increase of 81% year-on-year. The longer the receivables remain unpaid, the lower the likelihood of collecting them. 45% of respondents in the UK told us they had to wait an average of 20 days longer than last year to turn overdue invoices into cash (regional average: 39%). This is longer than last year’s 14 days.
An average of 8% of the total value of receivables was written off as uncollectable since the onset of the pandemic (regional average: 7%). Further, 5% of the total value of receivables was still outstanding at 90 days and businesses in the UK lost an average of 63% of the value of their receivables that were not paid within 90 days.
- 60% of businesses surveyed in the UK reported DSO increases of up to 10% (regional average: 57%)
- 35% reported increases of more than 10% compared to before the pandemic (regional average: 37%)
- Only 5% of businesses polled in the country reported shorter DSO compared to before the pandemic.
Half of businesses experience loss of revenue
50% of the businesses we spoke to in the UK told us that they experienced revenue loss following the onset of the pandemic (equal to the regional average). The increase in payment defaults also led to cash flow difficulties, as reported by 39% of respondents in the UK and 38% in Western Europe.
To avoid liquidity shortages 48% of businesses increased the amount of time, costs and resources they spent on collecting outstanding invoices (regional average: 37%).
Businesses source credit information directly from clients more often
Prior to the onset of the pandemic 56% of the businesses we surveyed in the UK said they normally relied on their customers’ financial statements (regional average: 41%). 44% reported using bank references (regional average: 39%) and 35% trade references (regional average: 31%). However, following the onset of the pandemic, more than a third of businesses (39%) were more inclined to also source credit information directly from the customers (regional average: 38%), in addition to their customary approach.
When assessing creditworthiness, businesses in the UK reported focusing on the following areas: profitability, financial flexibility and ability to generate cash. Over the coming months, they plan to closely review the payment history of trade credit applicants.
Discounting is used as major credit management tool
As a standard business practice, more UK respondents (64%) than their peers in Western Europe (48%) offer discounts for early payment of invoices. 62% request payment guarantees (regional average: 53%). However, 38% of respondents told us that following the start of the pandemic they began to retain and manage the risk of customer payment default internally through self-insurance (regional average: 47%) This represents an addition to the 59% of respondents saying that they already practise self-insurance, (regional average 56%).
49% told us they sent outstanding invoice reminders more frequently (regional average: 38%) and 47% reported resorting to trade debt securitisation more often (significantly higher than the 35% average for Western Europe). Looking ahead, this trend is set to continue with 63% of businesses in the UK favouring self-insurance (higher than the 56% in Western Europe). Prior to the pandemic, credit insurance was used by more respondents in the UK (54%) than by their peers in Western Europe (45%). Moving forward, 46% plan to use credit insurance, in line with Western Europe.
Businesses lean towards optimism for domestic and global economies
Although the pandemic means there are inevitably many unknowns when determining the outlook for the recovery and future growth of the domestic and global economies, business optimism prevails for each of the benchmarks we polled. 50% of respondents in the UK (regional average: 47%) believe customer creditworthiness will improve next year. This is more than twice the amount of those anticipating a decline (23% in the UK and regional average: 22%). 55% of UK respondents expect the domestic economy to improve in 2021 (regional average: 57%), while 28% expect it to decline (regional average: 27%).
More uncertainty was shown for the outlook for the global economy (48% optimistic and pessimistic 32%), although 51% expect international trade to grow next year only 30% anticipate deterioration.
Despite these levels of optimism, concerns over potential threats to business profitability stemming from the pandemic recession remain among the businesses we surveyed. 43% predict a fall in demand will be the greatest challenge to business profitability next year (regional average: 36%). Maintaining adequate cashflow ranks second (as expressed by 39% of respondents in the UK and 38% in Western Europe).